Closing the books each month means making sure everything for the month is recorded, reconciled and reviewed before you rely on the reports. A consistent close takes a few hours once it is a habit, and it makes year-end far easier.
1. Record everything for the month
- All sales invoices issued and customer payments received
- All supplier bills received, including those not yet paid
- Card transactions and receipts
- Payroll for every pay run in the month
- Payouts from payment processors and marketplaces, recorded gross with fees separate
2. Reconcile every account
Reconcile each bank account, credit card and loan to its statement. Reconciliation confirms that the books and the bank agree and is the single most effective check you can do. Our monthly bank reconciliation guide explains the steps.
3. Clear clearing accounts
Check undeposited funds, payment processor clearing accounts and any suspense account. They should hold only items in transit at month end.
4. Review receivables and payables
Run the customer ageing and supplier ageing reports. Follow up overdue invoices and check that bills shown as unpaid really are unpaid.
5. Record month-end adjustments
Depending on how you report, this may include:
- Accrued expenses for costs incurred but not yet billed
- Prepaid expenses released for the month, such as insurance
- Depreciation on fixed assets; see Publication 946
- Inventory adjustments from counts
The IRS explains in Publication 538 how the cash and accrual methods treat timing, which affects which adjustments apply to you.
6. Check tax liabilities
Compare sales tax payable and payroll liabilities with what the next returns and deposits will show. The IRS explains employer deposit schedules on its page about depositing and reporting employment taxes.
7. Review the reports
Read the profit and loss and balance sheet side by side. Compare with last month and the same month last year. Investigate anything that moved unexpectedly, and look for balances in "uncategorized" accounts.
8. Lock the period
Set a closing date in your software so the month cannot be changed accidentally. If something needs correcting later, record it in the current period with a note.
9. Keep the evidence
Save statements, reconciliation reports and notes for each month. The IRS explains how long to keep them in how long should I keep records.
Key terms
- Accrual: an entry that records income earned or a cost incurred before the invoice or bill is entered.
- Prepaid expense: a cost paid in advance and released to expense over the period it covers.
- Clearing account: a temporary account used while money moves between systems, such as from a card processor to the bank.
- Closing date: a setting in bookkeeping software that prevents changes to transactions before a chosen date.
- Variance: the difference between this period's figure and a comparison, such as last month or budget.
A simple timetable
Many small businesses record transactions weekly, reconcile accounts in the first few days of the new month, post adjustments and review reports in the second week, then lock the period. Keeping the same order each month is what makes the close quick.
How we help
A monthly close is the core of our bookkeeping services, and our accounting services add review and reporting on top.
